US shutdown boost fizzling out, as data concerns emerge

The FTSE 100 leads the way higher in early trade, coming off the back of a concerning jobs report that makes a December rate cut from the Bank of England increasingly likely. Following on from yesterday’s US shutdown fuelled optimism the gains seen in Europe this morning look to be a separate phenomenon given the weakness seen in US futures thus far. Today’s job report out of the UK provided a perfect mix of factors that would push the MPC into a rate cut next month, with weakness in the employment situation coming alongside a decline in wage growth. The jump in unemployment undoubtably grabs the headlines, rising to 5% for the first time in over four-years. With Rachel Reeves expected to ramp up taxes for workers, the fact that we are seeing a surge in unemployment and claimants does highlight the need for the BoE to step in sooner rather than later. As such, markets are now pricing a 73% chance that we see a rate cut in December, standing well above the 56% figure seen at the back end of last week. As a result, we have seen the pound hit hard, with EURGBP surging back through 0.88 and GBPUSD reversing lower.

The boost seen yesterday around the potential for an end to the US shutdown appears to be losing legs already. Although the fact that this historic event failed to negatively impact market sentiment over much of that 40 day period means that the boost from a resolution should similarly be short-lived. Markets look ahead to a vote in the House tomorrow which should ultimately pass the bill to the President later in the week. However, major questions remain for those wondering when we will start to see the economic data roll in given the complexity in collating figures retrospectively. With concerns around the quality of the data given a shift in methodology, will Fed members believe the data is robust enough to inform them around whether to cut rates next month?

Yesterday’s US rebound largely proved to be an AI affair, with Nvidia adding a whopping $270bn worth of market cap alone. Coming off the back of a period that largely saw impressive earnings from the Mag7 giants, it was Michael Burry’s Palantir and Nvidia short that raised concerns for many. However, yesterday’s rebound pushed the legendary investor into a fresh attack on the sector, accusing Oracle and Meta of overstating earnings by 26.9% and 20.8% respectively. Crucially he teased a major announcement on November 25 to shed more light on the overvaluations seen in the sector. This provides a potential cloud that could hang over tech stocks until we see exactly what evidence he has, with investors already jittery amid constant news coverage stating that we are currently in the late stages of a bubble. Next week’s Nvidia earnings will therefore likely take place against a cautious backdrop of concern given Burry’s announcement due roughly a week later.